Reliance’s refineries processed crude from the nearby Middle East and sold fuel to fast-growing markets in North Asia including China, Japan, South Korea and Taiwan.

That began to change when India’s oil demand surged, overtaking Japan as the world’s third-biggest consumer. Reliance took more interest in the country’s retail fuel sector and has opened more than 1,300 service stations.

This push into the domestic fuel market may stumble after India’s government imposed cost controls on Oct. 4 on gasoline and diesel prices to rein in recent record highs.

Reliance’s shares plunged 6.9 percent on the day of the announcement and are down about 20 percent since their record close on Aug. 28.

The price shock, driven by soaring crude import costs, angered consumers and triggered riots by farmers, forcing the government to react at the cost of its refiners’ health.

For now, Reliance is staying with its retail plans despite the recent trouble.

“When prices are cut, you have to effectively match it,” said Venkatachari Srikanth, Reliance’s joint chief financial officer, during their earnings presentation on Oct. 17. “We are not going to let this alter broadly our strategy on retail petroleum.”

In line with that, Reliance is planning as many as 2,000 retail stations with oil major BP Plc over the next three years, local media reported on Tuesday.

Reliance’s domestic push made sense in an Asian fuel market that is increasingly crowded with new refinery capacity from the Middle East, Southeast Asia and China.

The new capacity, combined with soaring crude prices, has eroded profit margins for producing refined fuels.

With the domestic market now also under pressure from price controls, some analysts have been spooked.

Sukrit Vijayakar, director of Indian oil consultancy Trifecta said the government move could “be disastrous for Reliance.”

But rising crude prices LCOc1, which jumped from under $70 per barrel in early 2018 to around $85 in early October, and a tumbling rupee INRUSD=R combined to push domestic fuel prices to records, undermining Reliance’s retail strategy despite some relief from a dip in crude prices in recent weeks.

Still, Rohit Ahuja, senior vice president of India’s BOB Capital Markets, which has a buy rating on Reliance, said signs of an “oil price shock” in India were “already visible.”

Reliance may gradually mothball its retail stations because of the cost controls, said Macquarie Capital Ltd Analyst Aditya Suresh in a note on Oct. 5, though the bank expects no meaningful impact on its earnings.

EXPORT MARKET & IMO 2020

Reliance may be better placed to thrive on exports despite the increasing competition in Asia and the Middle East.

The company operates the world’s biggest refinery complex at the port of Jamnagar in the western Indian state of Gujarat. The first Jamnagar plant can process 663,000 barrels per day (bpd) of crude while the second site can process another 709,000 bpd.

Reliance’s refining margins last quarter were at a premium of $3.40 per barrel over the average Singapore margin, the benchmark for Asia.

However, the Singapore margin DUB-SIN-REF has dropped by about 50 percent since mid-2017 because of rising crude prices. Reliance also said in its results that fewer refinery outages last quarter meant global run rates were high.

Still, Reliance’s refineries benefit from being among the most modern in the world.

Several units process residual fuel oil, the leftovers after crude oil is initially refined, into higher-value gasoline and distillate products as well as remove pollutants such as sulfur.

That ability to cut its high-sulfur fuel oil output to nearly nothing while maximizing its diesel fuel output gives Reliance an advantage as the International Maritime Organization (IMO) will require new low-sulfur fuel oil used in ships starting in 2020.

“IMO regulations are positive because of our mid-distillate configuration,” said Reliance’s Srikanth.

With a move toward cleaner fuels as part of IMO, BOB Capital’s Ahuja said Reliance’s gross refining margins could rise by up to $5 per barrel.

Beyond IMO 2020 and the Indian fuel price turmoil, the oil industry is threatened by the rise of electric vehicles and alternative fuels that could reduce oil’s use as a transport fuel.

Refiners are looking at petrochemicals to replace potentially lost demand in the transport sector.

“If I have to look at it from a ‘oil demand hit from electric vehicles’ perspective, it’s going to be petrochemicals that’s going to survive for them (Reliance) beyond ten years,” said Ahuja.

Combined, Reliance’s refining and marketing group along with its petrochemicals division contribute more than 90 percent of the overall company revenues, its latest annual report showed.

Under Reliance’s “Oil to Chemicals Journey” strategy the company is seeking to “upgrade all of our fuels to high value petrochemicals” over the next decade.

“We are focusing to produce and sell at every level,” said Reliance’s Srikanth. “Between whether to sell domestically or on bulk, whether we will export, every day is an analysis of which is a better option.”

Reporting by Koustav Samanta in SINGAPORE and Promit Muhkerjee in NEW DELHI; Writing by Henning Gloystein; Editing by Christian Schmollinger